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MetLife and others in the U.S.insurance industry -- even regulators -- are trying to figure out what it means to be a globally systemically important insurer (G-SII.)

On July 18, the Financial Stability Board (FSB) designated AIG and Prudential Financial as G-SIIs. MetLife was also designated.

“Our understanding is that being named a G-SII has no legal effect unless MetLife is designated a systemically important financial institution (SIFI) by the Financial Stability Oversight Council (FSOC). If we are designated a SIFI, MetLife would be subject to enhanced prudential standards promulgated by the Federal Reserve,” said CEO Steve Kandarian in a conference call Aug. 1 to discuss MetLife's second quarter earnings.

According to this thinking, Prudential Financial, which officially protested its SIFI designation in a hearing before FSOC last week, would shake off the G-SII designation if it successfully argues against the SIFI designation.

This is unlikely, but points to the reasons the Administration has pushed for coordination between the international systemic risk evaluations and the domestic ones. That is, under the Dodd-Frank Act, a G-SII that was not also a SIFI might have no meaning.

According to Treasury, which is basically the seat of the FSOC, under the Dodd-Frank Act, the FSOC has the authority to impose consolidated supervision on a G-SII by designating the company for Federal Reserve supervision and enhanced prudential standards.

Thus, determining authority resides with FSOC, according to Treasury.

But under Kandarian’s statement, it is the Federal Reserve Board: “The Fed will have to determine whether to subject U.S.-based G-SIIs to additional supervision and prudential rules,” he said.

Treasury’s spokesperson did not respond to an attempt to clarify the next steps.

The FSOC is working through the domestic nonbank designation process, having recently designated two “complex” nonbank financial companies and is continuing work “on other companies in various stages of the process,” a spokesperson said back in July, hinting that it is not only MetLife among nonbanks that it is evaluating.

When the NAIC was queried this week on regulatory authority regarding G-SIIs, NAIC President and Louisiana Insurance Commissioner Jim Donelon provided a statement that it has not reached any conclusions at this point.

However, he said, “State insurance regulators have created the NAIC Financial Stability Task Force to examine, among other things, the impact of a designation of an insurer by either the FSOC or the FSB as systemically important, and the ability of the states to take action to mitigate that potential threat.”

“There is no place for systemic risk in the insurance sector, but we have long held that subjecting a subset of companies to distinct regulation from the rest of the market could have negative consequences that deserve thoughtful consideration,” Donelon stated.

MetLife continues to protest the notion by any that it could be a SIFI.

“The life insurance industry is a source of financial stability. Even during periods of financial stress, the long-term nature of insurance liabilities protects against bank-like runs and the need to sell assets quickly,” Kandarian stated on the call, a transcript which is provided by Seeking Alpha.

It's unclear how long MetLife will remain in Stage 3 of the designation process, said Kandarian, noting MetLife's only frame of reference from the insurance industry is the experience of AIG and Prudential, both of which spent more than seven months in Stage 3.

On the conference call, MetLife asked the big question other insurers, regulators and service providers contemplate: What will the enhanced prudential rules will look like, in general?

“Will they be bank-like capital rules or rules appropriate for the business model of insurance?” Kandarian wondered, noting a provision in Dodd-Frank requiring capital standards for nonbank SIFIs to be no less rigorous than those that apply to banks.

“As I've said many times, if life insurers are subjected to capital rules designed for banks, MetLife's ability to issue guarantees would be constrained. We have to raise the price of products we offer to consumers or stop offering certain products altogether,” Kandarian said.

"To be clear, we strongly support prudential regulation of the life insurance industry. After all, we are financially liable for insolvencies to the state-based guarantee funds. What is imperative is that the rules be tailored to the business model of insurance.”